Who gives you financial advice?

Many times, we heard of people complaining that they were given wrong financial advice and had resulted in making poor financial decisions. One common reason that most people do not realise here is that they are actually seeking financial advice from a wrong person, which can be disastrous.

Most of the times, we had the impression that people who look wiser or are more matured are able to provide great financial advice. Well this may or may not be true. Actual fact, financial advice is complicated and thus is entirely different from all other types of advices which you could possibly hear. There are 3 main reasons here:

• The person who provide you the financial advice does not, and also is not able to understand your current financial situation in details.
• Personal finance is an integrated system so an advice can impact the entire financial plan.
• The person who advise you need not be responsible for whatever is said, because saying is easy while implementing it is another story.

Let me share a story about my client Andy. Andy works as a sales executive and always look up to his sales manager Bryan who is very successful in his company. On a lunch session, Bryan happen to ask Andy if he invest in any stocks, and is he aware that the stock market is in the middle of a bull run. Andy said he does not know anything about stock investment and would like to know more. Bryan said he has been buying stock ABC because it is a sure win, and he does not need to hold for long to easily make 30-50% profit. After hearing the analysis from Bryan, Andy was excited and proceed to use part of his savings to purchase ABC stock. In less than a month, the stock had rose 10% and Andy felt that he should have listened to Bryan earlier. Greed set in and he withdrew his joint account with his girlfriend, which was set aside earlier for wedding planning, and invested all money into ABC stock. Unfortunately, an unforeseen economic tension happened in a weeks’ time which triggered a heavy stock market correction. ABC stock came under heavy selling pressure and declined more than 20% in the week which followed. Andy was shocked and did not know what to do. He looked for his manager Bryan for explanation. Bryan told him that he could not be held responsible because he was just giving some stock tips out of goodwill, and cited that Andy should have done his homework before investing. Andy was dumbfounded. In the following week, ABC stock declined another 10% and Andy said it was enough! He sold away all ABC stocks and had to apologised to his girlfriend who demanded a good reason why the joint account had lost a hefty 30% in less than a month!

Andy told me this story when he engaged my financial planning service few years later, and specified that he will never want to invest a single cent although I mentioned that asset growth is an important pillar of financial planning. I told him that what he did that time was not the right approach to investment planning, and he had sought financial advice from a wrong person who does not understand his financial situation. During that time, he should not even be speculating in stocks because he needs the money in the short term for his wedding expenses.

That would be my advice if he had consulted me.